Organon & (OGN) - 2022 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements (unaudited) This section presents Organon & Co.'s unaudited condensed consolidated financial statements for Q3 2022, including income, comprehensive income, balance sheets, equity, cash flows, and related notes Condensed Consolidated Statements of Income Organon reported Q3 2022 revenues of $1,537M and net income of $227M, a decrease from Q3 2021, with nine-month net income also declining to $809M | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $1,537M | $1,600M | $4,689M | $4,701M | | Income Before Taxes | $282M | $389M | $1,011M | $1,293M | | Net Income | $227M | $323M | $809M | $1,149M | | Diluted EPS | $0.89 | $1.27 | $3.17 | $4.52 | Condensed Consolidated Statements of Comprehensive Income Q3 2022 comprehensive income was $130M, down from $297M in Q3 2021, mainly due to a larger $97M other comprehensive loss from translation adjustments | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $227M | $323M | $809M | $1,149M | | Other Comprehensive Loss | ($97M) | ($26M) | ($173M) | $118M (Income) | | Comprehensive Income | $130M | $297M | $636M | $1,267M | Condensed Consolidated Balance Sheets As of Sep 30, 2022, total assets were $10,437M, slightly down from year-end 2021, while total liabilities decreased to $11,493M, primarily due to reduced long-term debt | Balance Sheet Item | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $3,592M | $3,760M | | Cash and cash equivalents | $499M | $737M | | Goodwill | $4,603M | $4,603M | | Total Assets | $10,437M | $10,681M | | Total Current Liabilities | $2,328M | $2,597M | | Long-term debt | $8,691M | $9,125M | | Total Liabilities | $11,493M | $12,194M | | Total Deficit | ($1,066M) | ($1,508M) | Condensed Consolidated Statements of Equity The company's total deficit improved from ($1,508M) to ($1,066M) as of Sep 30, 2022, primarily due to net income, partially offset by cash dividends and other comprehensive loss - For the nine months ended September 30, 2022, the total deficit decreased from ($1,508) million to ($1,066) million[19] - Key changes in equity for the nine months ended Sep 30, 2022 include: Net income of $809 million, cash dividends of $218 million, and other comprehensive loss of $173 million[19] Condensed Consolidated Statements of Cash Flows For the nine months ended Sep 30, 2022, net cash from operating activities was $591M, a significant decrease from $2,113M in the prior year, ending with a cash balance of $499M | Cash Flow Activity (Nine Months Ended Sep 30) | 2022 | 2021 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $591M | $2,113M | | Net Cash Used in Investing Activities | ($359M) | ($348M) | | Net Cash Used in Financing Activities | ($351M) | ($790M) | | Net Decrease in Cash | ($238M) | $938M (Increase) | | Cash and Cash Equivalents, End of Period | $499M | $1,008M | Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations of Organon's financial statements, covering its spin-off from Merck, product portfolios, collaborations, acquisitions, debt, legal contingencies, and revenue breakdowns - Organon is a global healthcare company spun off from Merck on June 2, 2021, focusing on Women's Health, Biosimilars, and Established Brands[23][24] - The company has a collaboration with Samsung Bioepis to develop and commercialize multiple biosimilar candidates, sharing gross profits. For Q3 2022, sales from this collaboration were $129 million[39][43] - In 2022, Organon entered into several licensing and acquisition agreements, including with Cirqle ($10 million upfront), Henlius ($73 million upfront), Daré ($10 million upfront), and Bayer ($95 million total for product rights)[45][47][50][51] - As of September 30, 2022, total long-term debt was $8.7 billion, with a weighted-average interest rate of 4.5%. The company is in compliance with all debt covenants[65][69][71] - Organon is involved in various legal proceedings, including product liability litigation for Fosamax and Nexplanon/Implanon, for which it indemnifies Merck. Legal defense reserves were $15 million as of September 30, 2022[72][76][94] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Organon's financial performance for Q3 and the first nine months of 2022, detailing revenue trends, expense changes, and liquidity, including impacts from foreign exchange and business development Operating Results Q3 2022 worldwide sales decreased 4% to $1,537M (3% growth ex-FX) due to currency and tender timing, offset by strong Nexplanon and Renflexis growth, with mixed nine-month performance across product franchises | Metric | Q3 2022 | Q3 2021 | % Change | % Change (ex-FX) | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $1,537M | $1,600M | (4)% | 3% | - The loss of exclusivity (LOE) negatively impacted sales by approximately $40 million during the first nine months of 2022, mainly affecting NuvaRing in the U.S.[149] Key Product Sales Performance (Q3 2022 vs Q3 2021) | Product Franchise | Key Product | Q3 2022 Sales | % Change (Reported) | | :--- | :--- | :--- | :--- | | Women's Health | Nexplanon/Implanon NXT | $229M | 31% | | | NuvaRing | $50M | 3% | | Biosimilars | Renflexis | $60M | 11% | | | Ontruzant | $29M | (47)% | | Established Brands | Zetia/Vytorin | $118M | (11)% | | | Dulera | $40M | (28)% | Costs, Expenses and Other For Q3 2022, total costs and expenses increased 4% to $1,255M, primarily due to a 13% rise in SG&A and a 48% increase in R&D from acquisitions and clinical activity, offset by a 10% decrease in cost of sales | Expense Line | Q3 2022 | Q3 2021 | % Change | | :--- | :--- | :--- | :--- | | Cost of sales | $551M | $609M | (10)% | | Selling, general and administrative | $440M | $388M | 13% | | Research and development | $127M | $86M | 48% | | Interest expense | $108M | $98M | 10% | - The increase in R&D expenses was primarily due to higher costs associated with the Company's recent acquisitions of clinical stage assets and increased clinical study activity[175] Analysis of Liquidity and Capital Resources As of Sep 30, 2022, Organon had $499M in cash, with nine-month net cash from operations at $591M, a decrease from the prior year, while making a $100M debt prepayment and declaring a $0.28 per share dividend - Cash and cash equivalents stood at $499 million as of September 30, 2022[183] - Net cash provided by operating activities was $591 million for the nine months ended September 30, 2022, a decrease from $2.1 billion in the prior year period[185] - The company made a discretionary prepayment of $100 million on its U.S. Dollar-denominated term loan on June 6, 2022[183] - The Board of Directors declared a quarterly dividend of $0.28 per share, payable on December 15, 2022[191] Quantitative and Qualitative Disclosures About Market Risk Organon is exposed to market risks from foreign currency and interest rate fluctuations, managing currency risk through hedging programs, with no material changes to its market risk exposure during Q3 2022 - The company is primarily exposed to foreign exchange risk with respect to the euro, Swiss franc, and Japanese yen[195] - To mitigate currency risk, the company uses a balance sheet risk management program and has designated €1.75 billion of its euro-denominated debt as a net investment hedge[195] - There have been no material changes to Organon's market risk during the quarter ended September 30, 2022[197] Controls and Procedures Management, including the CEO and CFO, concluded Organon's disclosure controls and procedures were effective as of Sep 30, 2022, with no material changes to internal controls over financial reporting during the quarter - The CEO and CFO concluded that as of September 30, 2022, the Company's disclosure controls and procedures were effective[198] - No material changes to internal controls over financial reporting occurred during the third quarter of 2022[200] PART II - OTHER INFORMATION Legal Proceedings This section refers to Note 8 of the financial statements for detailed information on Organon's legal proceedings, including product liability and governmental cases - Information regarding legal proceedings is incorporated by reference from Note 8 of the financial statements[202] Risk Factors The company states there have been no material changes to its risk factors from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021 - There have been no material changes in the Company's risk factors from those disclosed in the Form 10-K for the year ended December 31, 2021[203] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications under Sarbanes-Oxley Act and XBRL data files - Exhibits filed include CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act, as well as XBRL data files[205]